Cards On The Table: Flipping Restriction...

Today we have a fresh update from the fearless leader of the Distress Property Coalition, and Real Estate Mogul’s seasoned Washington lobbyist, John Grant.

The fact is, while the bureaucrats are trying to make it harder and harder to buy and sell houses for profit, John is our advocate. He’s our reconnaissance team and our foot soldier, actively making moves in Washington for the entire REI industry.

We stay in close contact with John. He gives us regular feedback on what's going down in Washington and in the market as a whole. We tell him what we need and he fights for it on our behalf. He’s scored a number of major wins for us in the last couple of years (many of which you've heard about in the news, but had no clue who was behind it all).

An Update From Political and Market Advisor John Grant…

John Grant I spent the better part of the last two weeks in meetings with members of Congress, staff and committee lawyers on Capitol Hill discussing the Distressed Property Coalition’s 2013 policy agenda.

As discussed in a previous article, these meetings involve not only informing and educating members and staff on our issues, but developing a road map for achieving our goals and providing political incentive to act on our agenda.

Before discussing the results of these initial meetings, I would like to provide some broad perspective on what is going on now in Washington in terms of housing policy.

A Fannie/Freddie Gut Job?

There is no question that House Republicans are going to introduce and attempt to pass legislation completely overhauling the current government-sponsored enterprise system (Fannie and Freddie).

While there is some dissent, the overall impression I have is that the reform will seek to end Fannie and Freddie.

The big question: How do we keep a 30-year fixed mortgage under the new system?

There is major lobbying pressure in Washington to preserve the certainty and benefits of the 30-year fixed mortgage.

All indications are that the House should be able to pass a reform bill during this Congress (within the next two years). Much less certain is the Senate. The views seem more diverse, and if a measure does pass in the Senate it will need to be reconciled with the House bill in a conference committee. If the two bodies take entirely different approaches to reform, it will be impossible to reconcile the two bills.

How We’re Approaching This

Two critical meetings that took place during the past two weeks involved a follow-up meeting with the office of the chairman of the House subcommittee with oversight over Fannie and Freddie, and with an attorney for Democrats on the House Financial Services Committee.

After a discussion of our policy agenda, and the mechanics of achieving those goals, I proposed an idea to offer a series of questions for them to share with FHFA, Fannie and Freddie which would initiate the conversation to continued reform on investor issues.

While DPC has a number of policy issues on its 2013 agenda, I’m focusing here on valuations of short sales and REOs and flipping restrictions.

In terms of valuations, our goal is not a charge against the new methodology focusing on local market conditions, but simply ensuring that this methodology do just exactly that, and in some instances it is not.

As for flipping, we actually agree with FHA that arbitrary deed restrictions undermine legitimate transactions, and we seek:

Either a justification for the restrictions (vague claims of fraud don’t count)
Or an end to the restrictions entirely.

Here are some of the questions I prepared for Congressional members and staff to address with FHFA and the GSEs on these issues.

Our Questions on Valuations of Short Sales & REOs

1. Why No Distressed Sales: “The GSEs have adopted a new valuation methodology for short sales and REOs that takes into account local market conditions and credit availability. Multiple servicers have stated to my clients that the new valuation formula does not account for REO sales and short sales in a market. Why are distressed sales not considered part of ‘local market conditions’?”

2. Real Reasons: “Home sale prices have increased since the adoption of the new valuation methodology. How much of the price uptick, offered by many as evidence of a recovery, is due to higher employment, an improved economy, or the fact that the GSEs are formulating valuations ignoring REOs and short sales?”

3. The Cost of Home Price Inflation: We understand FHFA's obligation to taxpayers, and that getting more for these properties helps taxpayers. Has any consideration been given to the potential consequences of home price inflation on the long-term prospects for recovery?

Our Questions on Deed/Flipping Restrictions

1. Cap on Short Sale Profits: “FHFA and the GSEs have instituted 20% resale caps on short sale properties. Many of the properties we encounter have been abandoned for many months, and require substantial repair. The resale caps are prohibitive for buyers of distressed areas, because after repairs their profit is minimal.

Can there be some flexibility on resale caps, particularly for homes that need substantial repair? If not, and my clients have no profit incentive to repair these homes, who is going to repair them?”

2. Resale Timeframe Restrictions: “Perpetrators of fraud do not want to hold properties more than a couple weeks. They obtain a false appraisal, whitewash the property and seek a buyer, sometimes having a buyer already lined up. Colorado instituted a 14 day hold period that has proven to be an effective anti-fraud tool. There is no dispute a professional home rehabber can make legitimate and value-adding repairs in 30-45 days. Given the number of properties throughout the country in need of repair, would FHFA consider adopting the Colorado policy, or at least removing any additional resale restrictions on short sale and REO properties after 30 days?”

3. Mythical Distressed Property Value: “Do Fannie and Freddie still maintain their position that there is no such thing as a distressed property value, and they should obtain retail value for REOs and short sales? Can they point to any economist not in their employ who agrees with the position that REO values are a “stigma” and not a function of the housing market?”

-John Grant

These Are Our Reasonable Questions

These are the reasonable questions John will be asking key Congressional members and staff to address.

With a legitimate seat at the table, our aim is to not only make a rational case on behalf of investors for these issues, but to help craft legitimate changes that will benefit not only real estate investors, but the free market and, ultimately the housing sector and the economy.

We all know real estate investors are a key vertebrae in the backbone of economic recovery. We just have to open their eyes to it, one meeting at a time.

We look forward to sharing their responses with you in the coming weeks.